The 117th Congress has been focused on the second impeachment of former President Donald Trump and a COVID-19 relief package. It hasn’t yet approved any tax bills for President Joe Biden to sign.
Yet a post widely shared on Facebook stated: "Biden signs 45% Capital gains tax. Kiss your inheritance goodbye."
The post was flagged as part of Facebook’s efforts to combat false news and misinformation on its News Feed. (Read more about our partnership with Facebook.)
The claim raises issues related to two different taxes that Biden has proposed changing: the capital gains tax, which is applied to the profits from sales of assets such as stocks; and the estate tax, which is applied to assets after their owner dies and can reduce the size of an inheritance.
But the proposed changes haven’t been enacted.
"These are just campaign proposals. Nothing's been passed, nothing’s been signed," said Robert McClelland, a senior fellow with the Tax Policy Center.
Proposal to increase capital gains rate
A capital gain is the difference between what someone paid for an asset, also known as the "basis," and what they sold it for. The tax rates for capital gains vary based on income and how long the asset was owned. Rates are more favorable for assets that are held for more than a year, and some gains on home sales are exempt from taxes.
This increase would apply only to people earning more than $1 million per year.
Proposal to raise and expand the estate tax
When it comes to inheritances, the vast majority of estates do not pay the estate tax; it kicks in only for larger estates.
The current 40% estate tax rate applies only to individual estates larger than $11.58 million, and only to the assets above that amount (the threshold is $23.16 million for married couples). That is, the first $11.58 million of an estate is exempt from federal estate taxes.
The exemption is that high largely because the 2017 Tax Cuts and Jobs Act doubled the exemption in 2018 and indexed it to inflation after 2018. However, that provision is set to expire in 2025. After that, the exemption would revert to $5 million, unless the law is changed.
Candidate Biden proposedraising the rate to 45% and reducing the exemption to $3.5 million. So, the change would affect more estates and subject them to higher taxes.
Based on the estimated 2.81 million people who will die in 2022, about 2,600 estates, or 0.09%, would be taxable under current law, the Tax Policy Center estimates. If the exemption were reduced to $3.5 million, about 16,600 estates, or 0.59%, would be taxable.
Broad "stepped-up" change proposal
Biden also proposed another change that’s related to both capital gains and inheritances. It involves a current tax policy called "stepped-up basis."
Stepped-up basis provides a big benefit to those who inherit certain assets, including real estate, that has appreciated in value over time. It resets the cost basis for an asset to its fair-market value when the owner died.
So under stepped-up basis, a person who inherits an asset and then sells it for a profit has to pay a capital gains tax on its gains in value only from the date of the estate owner’s death, rather than from the time it was originally purchased.
Biden proposed eliminating stepped-up basis, so that the tax would apply on the asset’s full gain in value since purchase. It’s possible any proposal might apply only to those making $400,000, in keeping with his pledge not to raise taxes on people making less than that.
A widely shared Facebook post stated: "Biden signs 45% capital gains tax. Kiss your inheritance goodbye."
Biden has proposed changes that would increase capital gains and estate tax rates, and expand the reach of both taxes.
But Congress has not passed any of those changes, and thus no such bill has been signed by Biden.